Amazon Invites a Short Bet

 | May 17, 2013 | 10:00 AM EDT
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Risk definition: Max above the $271.60 area, min above the May 14 high at $269.40.

Even though Amazon (AMZN) has some potential for even higher prices, it has just stalled at a key price cluster of resistance at the $268.07-$271.60 area. This zone includes some key retracements of prior swings, along with two very important symmetry projections.

A symmetry projection is essentially a measured move. In this example, I am measuring a prior swing (the Feb. 7 low to the March 12 high, which was $22.29) and then projecting 100% of that move from the May 2 low. I also took 100% of the March 22 low to the April 25 high, which was a $23.73 swing, and projected 100% of that move from the May 2 low. Note that the most recent swing from the May 2 low has been $23.62 so far, which is very similar to some of these prior rally swings.

AMZN Daily

In the past, after those similar rallies, we saw a pretty healthy declines in Amazon. There was a $25.33 decline from the March 12 high. There was a $30.02 decline from the April 25 high. Now I can't tell you that this will definitely happen again, but since this current resistance is holding and I have seen a sell trigger that has just fired on the lower time frame charts, I do have reason to place a bet on the short side as long as my risk is well defined!

Typically, my initial stop on a short setup will be placed above the high made prior to the sell trigger firing off, which would in this case be the $269.40 swing high made on May 14. My other option is to give it a little more room and place the stop above the top end of the price cluster setup zone, which in this case is above the $271.60 area. Maybe place it $0.50 to a buck behind that level. Let's take a look at the trigger chart next.

For swing-trade setups, I either use the 15-minute chart for an aggressive trigger entry or the 30-minute chart. Keep in mind that if you use the aggressive trigger chart, you will tend to have more stop-outs. Today I am illustrating a "trigger" on the 30-minute chart below. This chart shows you what I typically use, which is an 8/34 ema crossover along with the confirmation of a prior swing low being taken out to the downside. This occurred in Thursday's trading session.

Bottom line, I am short Amazon via an options vertical put spread. I will consider myself wrong if the May 14 high is taken out. I will use a trailing stop if the trade allows me as it starts to unfold.  

AMZN, 30-Minute
Dynamic Trader

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